Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)


The general objective of financial reporting is to provide useful information for making economic decisions. Net realizable value has been recommended and advocated as a valuation method that would improve the usefulness of reported fnancial information. One shortcoming of the net realizable value method is that there are no established used market prices for certain fixed assets, such as buildings. At present, there is no evidence indicating that a solution to this shortcoming has been found. Therefore, the purpose of this study is to empirically test the reliability of using specific price indexes in predicting net realizable values for certain types of buildings. The top 1,000 publicly held corporations in the United States in 1980 were selected and top financial executives were asked to provide data on completed transactions (entry and exit values) for office, warehouse, and general purpose buildings. Five specific price indexes pertaining to buildings and construction were used in developing the model. All possible least square regressions were performed to test for the "best" index or combination of indexes. One model surfaced as being statistically significant at the 5 percent level of confidence. Its predictive ability was tested resulting in a wide variance of predicted net realizable values when compared to actual selling prices. Further tests were conducted by dividing the sample population into two time periods: long-term and short-term. The null hypothesis was rejected at the 5 percent level of confidence for all models in the long-term group, while 11 models proved to be statistically significant at the 5 percent level in the short-term group. The predictive ability of each of the 11 models was tested and again the results showed a wide range in predicted values when compared to actual selling prices. Because of the wide difference in values, the practical application of any of the models is questionable in predicting net realizable values for buildings of the type included in the study. Although the use of the models developed is questionable, this study is an invitation to others to conduct further research in this area.